Gov’t floats $500M in sovereign bonds
Credit standing seen to boost sale
By Michelle Remo
Philippine Daily Inquirer
First Posted 23:43:00 01/29/2008
Filed Under: bonds and t-bills, Government Debt, Debt Markets
MANILA, Philippines--The national government Tuesday floated $500 million in sovereign bonds in the international capital market, hoping to complete its foreign commercial borrowing requirement for the year before problems brought on by the US subprime market become worse.
“We have announced the offering this morning in Asia,” said Roberto Tan, acting national treasurer and finance undersecretary.
The issue is expected to be priced at about 97-3/8, said two persons involved in the deal.
The bonds will mature in 2032.
Credit Suisse and Deutsche Bank are handling the bond sale for the Philippines.
The Department of Finance said it decided it would be prudent to borrow all the $500 million in one tranche before interest rates in the external market became more volatile.
Analysts expect more banks to report losses in their subprime market lending in the months ahead. That development is seen to adversely affect appetite for bonds issued by emerging economies, which have a similar credit rating with that of the US subprime market.
The DoF said the government timed the bond offer perfectly -- coming a week after Moody’s Investors Service improved its outlook on the Philippines from “stable” to “positive.”
A “positive” outlook indicates possibility of an increase in the country’s credit rating within the short term. Moody’s, considered the most critical of the Philippines among credit ratings firms, sets the country’s rating at four notches below investment grade.
Moody’s cited the Philippine government’s improving fiscal condition, among other reasons, for the improved outlook. The government was supposed to limit its budget deficit last year at P63 billion. But according to analysts, the actual budget gap could be much smaller due to higher revenue collection.
“We expect a lot of market interest for the bond issue,” Tan told reporters after yesterday’s auction in Manila. “The news on the country’s credit [standing] is helping in terms of pulling up investors’ interest.”
Tan said proceeds of the bond issue would be used to pay off some of the government’s maturing obligations for the year.
The government expects to finally post a balanced budget this year, or after 10 years of being in the red. This means the government does not need to borrow for its operational requirements. It only needs to settle maturing liabilities.
The $500 million borrowed commercially from the international capital market is part of the government’s total foreign borrowing requirement of $2 billion. The larger share of $1.5 billion will be drawn from official development assistance extended by multilateral lending institutions, including the World Bank, the Asian Development Bank and the Japan Bank for International Cooperation.
The $2 billion in foreign borrowings account for 30 percent of the government’s total borrowings for this year. The government intends to borrow 70 percent of its financing requirement from the domestic market.
The DoF said borrowing more from the domestic market was a debt-management strategy to minimize the country’s exposure to foreign exchange risks. With a report from Reuters
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